We’ll be featuring insights from Dean Barber, host of, “America’s Wealth Management Show,” the radio show which our very own Ken Osiwala co-hosts.
This last month has been a pretty typical October. Two of the last three major bear markets have begun in the month of October and so many people are asking, “Was this October the signal of the next bear market to come?”
It’s October 31st as of writing this and we’re going to talk about the stock market, and our thoughts on whether to not we think the next bear market is coming. One thing we do know is that if this is the start of the next bear market, we’re ready. The strategies that we employ at Osiwala Financial Group are not designed to mitigate short-term volatility, that’s impossible to do. Our goal is to mitigate and reduce the depth of losses and have programs in place that can provide a stopping point when markets get bad.
It is important that you have a proactive plan that’s well thought out and helps prepare you for these volatile times. What you never want to do is watch it go down and think to yourself, “I hope this doesn’t get worse” and hopefully that’s exactly why you’ve hired us. If you aren’t a client, the most important thing to do is to reach out to your advisor, see if they have a plan, and if they don’t get a second opinion with one of our advisors. It is important to feel comfortable and knowledgeable about your own plan and we make that a priority when working with our clients.
As you take a look at the markets in October, you’ll see that it’s all down. The worst performing index for month was the NASDAQ. We’ve got some bad things happening, but as you notice we’re up about 750 points over the last few days. However, that’s not enough to make up for all the damage that was done earlier in the month.
Year-to-date, we had a run-up in January, a collapse in February and April and now we have another collapse in October. This is the third time this year that the indices have been in negative territory. We think we will come out of this, but you never know. Since 1950 we have had seven years where the markets were positive year-to-date going into October, and then October took away all of those gains taking the indices into negative territory. Six out of those seven times the markets ended up positive for the year but that isn’t enough to tell us that things will be ok.
Looking at other data, wage increases are up by 3.1% on an annualized basis which is the highest wage increases in a decade. Unemployment is at 3.7% and we haven’t seen that since 1969. The Yield on the 10 Year Treasury remains at 3.15%. The Fed is raising rates and they will again in December. But where the markets are today, stocks (from a price to earnings ratio perspective) are valued lower than where they were in January. Corporate earnings are up 10% and the housing market is still strong.
We have three things going on right now. First, trade negotiations with China, second, political season and Midterm Elections, and third, the interest rates. Powell has raised rates 3 times this year. With that being said, the 10 Year Treasury Yield is still not showing the pressure on the long-term rates. In fact, inflation is still extremely benign running at an annualized rate at 2.7%. This pick up in wages could cause us to start to see a little bit of pressure on inflation, we’ll have to wait and see. The point is when we think about the fundamentals and look at the real things happening in the economy, you typically don’t see Bear Markets start in times of economic expansion, robust growth, and low unemployment. We think the markets were blowing off steam but there’s no way to know that for sure.
If we take a look at our short-term indicator, we realize how sensitive it really is. Some of our clients who are in some of our more dynamic portfolios may have noticed that we make short-term reactions based on this indicator. To clarify further, the short-term indicator tells us whether the outlook is positive or negative for the short-term (over the next few days to the next few weeks).
Out of everything we’ve covered in this blog, the most important thing to do is to talk to your financial advisor and make sure you understand how your portfolio is positioned. We work very hard to make sure you can accomplish your long-term goals. We know as Financial Advisors in Detroit and with decades of experience that we will experience volatility. To us this is second nature. We also know that when the markets get bad, meaning it’s down 30-50% we have to have mechanisms in place to help avoid it.